Cutting offshore businesses key to reviving global economy - Putin

Putting a lid on speculative and often illegal financial schemes developed through offshore zones is one the keys to a more stable global economy, according to President Putin talking to RIA Novosti.

The need to ammend the IMF structure and learn to live by ones
means were among other remedies the President suggested for the
struggling economies across the globe.

Ahead of the two key economic events – G8 meeting in Great
Britain at the start of the next week and St. Petersburg
International Economic Forum later on June 20-23 – Russia’s
President Vladimir Putin gave a broad interview to the RIA
Novosti information service.

QUESTION: Increasing transparency of the global economy
and abandoning the active use of offshore zones was declared by
Great Britain as one of the priorities of its G8 Presidency. What
tools for global economy deoffshorisation will be proposed by
Russia? In this regard, will Russia make a proposal at the summit
to examine the problem of the British Virgin Islands, which are
under the jurisdiction of Great Britain, more thoroughly?

VLADIMIR PUTIN: Deoffshorisation is an important condition
for eliminating structural imbalances in the global economy. It
is no secret that it is in offshore zones that considerable
amounts of speculative and sometimes blatantly criminal capital
are accumulated. And the countries and territories where it is
registered often have very little understanding of the money
owners or its origin. Sudden emergence and uncontrolled movement
of these funds has an extremely negative effect on the global
financial system.

The outflow of capitals to offshore zones reduces tax base,
decreases tax revenues and threatens national fiscal sovereignty.
Against such a background, it is difficult to talk about building
a fair taxation system. We have all seen not so long ago the head
of Apple answer awkward questions from senators about the fact
that his company keeps tens of billions of dollars earned in the
United States outside the American tax boundaries.

The fight against tax evasion through offshore zones is a very
difficult and laborious task. To that end, it is important to use
not only national, but also international regulatory tools.

As one of deoffshorisation measures, Russia proposes to conclude
bilateral agreements with offshore and low-tax jurisdictions.
Such documents should be aimed at countering illegal schemes of
minimising taxation, involve the exchange of tax information and
implementation of universal recommendations developed within the
framework of the OECD.

Strengthening international cooperation on tax issues has become
a priority for the G20 after the onset of the global financial
crisis. The OECD Global Forum on Transparency and Exchange of
Information for Tax Purposes is engaged in active and useful
work. It assesses the legislation of this forum’s member states
in order to identify whether it complies with international
information disclosure standards.

Regarding the situation with offshore zones on territories under
the jurisdiction of Great Britain, the host of the G8 summit
David Cameron was among those who drew attention to this problem.
The British prime minister has been consistently working to
increase transparency in taxation (including the issues of tax
evasion and aggressive optimisation) not only in the world as a
whole, but also at home. I hope that his call to enhance
interaction on exchanging tax information and facilitating access
of supervisory authorities to the data on ultimate beneficiaries
will be heard.

QUESTION : The issue of IMF reform has been already
discussed for several years during the meetings of both G8 and
G20. However, these discussions come to nothing due to
unwillingness of the Fund’s "founding fathers" to share power and
influence. Do you think it’s time to take some more radical
steps, for instance, to dissolve the IMF, start from scratch and
establish a new organisation taking into account modern financial
and political realities?

VLADIMIR PUTIN: The IMF needs a thorough reform. This view
is shared by all the shareholders of the Fund. The problem is
that the IMF frequently fails to keep pace with the rapidly
changing situation in global financial markets, first of all,
when making efficient and timely decisions. Their implementation
leaves much to be desired as well. A good example is the global
financial crisis, which the IMF system failed to prevent.

I believe it is a wrong approach to think that the new councils,
funds or other international institutions will become a panacea
for all the problems. It is important, drawing upon the unique
experience of co-operation within the IMF, to take further action
to improve its work. We should be talking about the Fund’s
overall reorganisation, ways to adjust it to current economic
realities. And here it is most important to revise the existing
IMF quota and voting system, to enhance the role of developing
countries, including our BRICS partners.

It is true that negotiations on these tracks are not going
smoothly. I would say that they have actually come to a
standstill since 2010. We will make maximum effort to persuade
our partners to reach a compromise and find mutually acceptable
solutions in the run-up to the G20 Summit in St Petersburg.

I would like to stress that changes in the IMF represent only a
part of the global financial architecture reform. Its other
priorities include lending and public debt management policy, as
well as enhanced collaboration between regional financial
mechanisms and the IMF.

QUESTION : Another priority announced by Great Britain for
its G8 Presidency is the revitalisation of international trade.
How urgent is the problem of trade barriers, in your opinion? How
reasonable are the efforts of the states with radically different
economic environments to find a common ground for their countries
in order to revitalise international trade?

VLADIMIR PUTIN: The development of international trade is
one of the key sources of economic growth. That is why we cannot
help being concerned about the negative trend in the growth rates
for world trade which declined to 2% in 2012. Estimates for this
year (a 3.3% growth) do not seem very optimistic either.

This means that in spite of the crisis we should focus our joint
efforts on developing trade and not on introducing protectionist
measures. Protectionist lobbies within some countries have become
more active which is the evidence that this threat persists.

It was in the spirit of joint actions that we proposed to our G20
partners to extend the moratorium on protectionist measures in
trade and continue monitoring the implementation of such
measures.

In this respect, I would like to emphasise that we consider the
WTO to be the foundation on which the whole system of world trade
rules is based. Unfortunately, we can see that there is certain
stagnation right now within the WTO. However, this is not the
reason to tear this structure down. We need to work to strengthen
and develop it. We are actively trying to persuade our partners
to conclude as soon as possible the Doha Round that has already
been going on for 12 years. We hope that some progress will be
made on this matter during the Ministerial Meeting scheduled for
this December.

Now about the differences in the economic environments of the
countries. They necessitate the establishment of common and clear
for all market “rules of the game” in trade which would allow the
countries to avoid biased approaches and protectionist barriers.
The WTO creates a common legal framework and provides effective
leverage against offenders. All this serves to make the world
trade predictable and stable and ensure its more rapid
development.

At the same time we have to look at the issue of liberalisation
of trade and investment in a broader perspective. Integrated
associations are becoming ever more important and free trade
zones are being established. We are actively promoting the
project of the Eurasian Economic Union that includes Kazakhstan
and Belarus. This is a good example of barriers really lifted and
trade revitalised. It is important that integration agreements
correspond to the WTO requirements and regulations. We ensure
this within our Customs Union, even though Kazakhstan and Belarus
have not yet joined the organisation.

QUESTION:Russia has been a WTO memberfor a year now.One of the arguments in favour
of theWTO accessionwas our intention to
assure that Russia plays by the “rules of the game” sameas for therest of the world.In your opinion,wasthis
goalachieved?

VLADIMIR PUTIN:Last yearwe completed
theWTO accession. Ourdomestic
legislation andhundreds oftariff
lineswereagreed on
andbrought in linewith WTO
rulesin the course ofa long
and uneasy negotiation process. This does not mean that
afterRussia's accessionto the WTO rapid
changes and new “rules of the game” will be introduced. We have
been using the WTO norms and standards for quite a long time now.
And the fact that all WTO members approved Russia’s accession to
the organisation confirms that Russianeconomy is
ready forthe new working conditions.

Russia's accession to the WTO allows it to fully participate in
the development and improvement of international trade rules.We
are yet to learn how to take full advantage of the acceptable
instruments to support domestic producers, resolve trade disputes
and protect Russian goods in foreign markets.

Russia has one of the highest legislative transparency standards
among WTO participants, as well as detailed external trade
regulations.Of course, some claim that Russia does not fully
comply with its WTO obligations.However, I would like to stress
that we can make the same claims regarding our partners.We
believe that Russian goods are unreasonably denied access to the
domestic markets of mineral fertilisers, chemicals,
petrochemicals and automotive fuel, as well as to pipe and metal
industry in a number of countries.Nevertheless, it is a normal
working process:the US, China, India, the EU and other
international trade participants are settling the same disputes.

I would like to point out once again that we must take full
advantage of WTO instruments to protect our trade and economic
interests and prevent our partners from using unfair competition
practices.

QUESTION: One of the issues to be discussed at the
upcoming SPIEF is whether the welfare state can be economically
competitive in the modern world. In your view, does the European
model of a welfare state have a future? Does it bother you that
Russia can repeat the path of Europe that is affected by economic
inefficiency?

VLADIMIR PUTIN: I think the question is incorrect. How can
we link economic efficiency of a state, its competitiveness with
the renunciation of all its social obligations? One of the main
functions of the state is to take care of its population and
ensure its social protection. A potential refusal from this
function would endanger the existence of the institution of state
as such.

The problem has a different nature, which was clearly shown by
the crisis in certain European countries. The key word here is
inefficiency. It is not the social policy that leads to the
consequences Europe is facing today, but rather living beyond the
means, losing control of the general economic situation and
structural distortions. Moreover, many European countries are
witnessing a rise of dependency mentality when not working is
often much more beneficial than working. This type of mentality
endangers not only the economy but also the moral basics of the
society. It is not a secret that many citizens of less developed
countries come to Europe intentionally to live off welfare, like
they call it in Germany.

For Russia, such approach is unacceptable. A social state is not
something that we simply want. It is a necessity. We are working
on striking a balance between decent salaries in the budgetary
field, an appropriate pension system, quality public services,
including medical and educational services, and a reasonable
budgetary policy and measures to stimulate the economy.
Otherwise, people cannot be confident in the future, cannot trust
the government, while it is essential for stable economic growth
and national development. We can easily recall such a situation
in the 1990s when many social obligations were not fulfilled and
poverty was growing at a threatening pace.

We made our choice long ago. We will not renounce our social
obligations. Today, the main economy stimulating factors in our
country are income growth, consumer spending growth and growth of
bank lending. The government allocates large funds for raising
employment, creating jobs and implementing employment programs.
And the real wage is constantly growing. Pensions and social
benefits are adjusted in time; the pension system as a whole is
being modernised. As a result, for the first four months of 2013
the unemployment rate in Russia remained rather low at 5.7%.

We pay a lot of attention to improving the demographic situation
and developing the healthcare system. We are implementing the
corresponding projects and programs.

As for Europe, we see that leading European countries carry out
structural reforms to raise the competitiveness of their
economies, and fight unemployment. At the same time, due to
stronger coordination between budgetary and economic policies,
the approach to budgetary discipline is getting more flexible.
And these countries recorded their obligations in the EU strategy
of social and economic development up to 2020. Therefore, we
should not reject the European social model.

QUESTION: This year the SPIEF traditionally provides an
opportunity to focus on the issues of sustainable economic growth
and Russia’s role in global affairs. What does Russia see as new
sources of global economic growth and what will Russia itself use
as catalysts for changes?

VLADIMIR PUTIN: Today, it is important to evaluate the
internal reserves of each country carefully and look for new
sources of growth there. First of all, it is essential to improve
public administration, develop human capital and competition, as
well as increase investments in social sector, education, science
and infrastructure. These are the keys to economic growth,
innovative technology and job creation.

Therefore, the issue of financing long-term investments has been
put at the top of agenda under Russia’s G20 presidency this year.
Before the summit in St Petersburg we are going to propose
specific actions aimed at creating conditions for enhancing
investment in real economy and increasing the number of effective
tools for co-financing investment projects.

Booming international trade is yet another significant source of
growth. Modern situation clearly illustrates that certain states
or groups of states, no matter how big they are, have reached
their potential in regulating economies and financial systems. We
need to adopt a unifying agenda. Global challenges and threats
can only be countered through consolidated efforts of all States.

Further progressive and sustainable economic growth, apparently,
requires harmonisation of economic policies on a global scale,
transformation of international monetary and financial system and
financial regulation and supervision system, investment
promotion, higher level of trust and enhancement of transparency
and predictability of markets, including energy ones.

Such work has already begun. It is important to accomplish it and
to complement the steps already taken with full-fledged universal
agreements. Russia which has assumed the G20 presidency for this
year will actively promote such agenda at the forthcoming summit
in St Petersburg.